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Monday, September 22, 2008

Krispy Kreme: Icon Struggles

Economics Threaten Tradition at an Iconic Brand: KrispyKreme

Another iconic American company brand that hasstruggled to recover it's previous magic is tying to reinvent itself. KrispyKreme, the donut shop that used to let you watch those greasy glazed globules of donuty deliciousness come right out of the deep fryer and on their way to your mouth are introducing some new products.

What are they launching? Soft serve ice cream. Yawn.

McDonald's and Dairy Queen already have a mortal lock on soft-serve ice cream, don't they? Even Dunkin' Donuts, the main competition for KrispyKreme is already serving a lot of hand-packed ice cream under their co-branding agreement with Baskin-Robbins. They are also rolling out soft serve at their stores.

Faced with a drop in sales caused by a weakened economy, changes in diet due to health concerns, and a struggling franchise business model, KrispyKreme has fallen on hard times in the past several years.

In 2008, the company has faced:

The termination of their CEO, Jame H. Morgan.

An all time low stock price of $2.23 per share, compared to nearly $50 per share in 2000.

Declining sales and profitability.

Perhaps most telling is the decision to move away from the "factory store" which allowed customers to watch the preparation of fresh donuts. One of these stores currently operates at the Luxor in Las Vegas.

KrispyKreme is also building stores internationally for the first time in an effort to boost sales.

Analysts are not confident of the company's ability to turn things around.

"They're trying to reposition themselves as more of a treat concept" thatoffers consumers desserts and indulgences, said Bob Goldin, executive vicepresident at food industry research firm Technomic. But "it'll be hard to argueit's a growth business" given trends toward eating healthier, he said.